Employers must take more responsibility for helping to fund workplace pensions or face being forced to do so, the Government-backed body tasked with looking at solutions to the UK’s pensions’ crisis has warned.
The stark message was part of a series of recommendations made by the Employer Task Force on Pensions, which stressed urgent action needs to be taken if the UK is to maintain the current voluntary system of occupational pension schemes.
The taskforce, an employer-led body with union representation, was set up by the Government in July 2003 to consider how employers can help increase pension provision within a voluntary framework.
It has set out a raft of suggestions for employers, workers, the Government, unions and the financial services industry.
But task force chairman Sir Peter Davis – the former boss of supermarket chain Sainsbury – warned the current voluntary system may not be sustainable for much longer.
“We at the Employer Task Force want the current voluntary approach to work and believe employers have an opportunity to build on and improve the current framework in a way that makes sense for business,” he said.
“But make no mistake, we are in a ‘last chance saloon’ for voluntarism, and unless we can reverse the current decline in adequate employer-led pension provision and deliver increased savings from both employers and employees through the voluntary framework, the Government may be forced to look at more drastic solutions,” he added.
Its urged employers to recognise they have a responsibility to help fund the pensions of their employees, to aim to achieve combined contribution levels of between 10-15 per cent, with employers ideally providing two thirds.
It also called for businesses to recognise the importance of maintaining fairness in the shift from final salary to other forms of pensions.
The Government, meanwhile, needed to provide a stable, long-term framework for UK pensions, with clear guidance on who should be saving.
Ministers also needed to provide stability for medium and large employers by maintaining current levels of financial support for pensions, and to look at how to increase contributions from smaller businesses.
This could include introducing new targeted financial incentives to encourage employer contributions.
Employees had to take responsibility for their own pension provision, too, and contribute to their schemes, while recognising that employer support for pensions was a key workplace benefit.
Unions needed to promote awareness of the need to save for retirement among their members and encourage members to join good occupational pension schemes.
The financial services industry had its part to play, working with the Government to review the annuities market, recommended the task force.
The industry also needed to provide a better service especially to smaller businesses.
The Confederation of British Industry welcomed the report but warned changing from a voluntary to a compulsory system should not be seen as a “panacea”.
Deputy director-general John Cridland, said: “As the CBI has made clear, it would be seen by many as a new tax on jobs. Individuals could also resent being forced to invest in a volatile stock market and the loss of choice to make other kinds of investment to pay for retirement.
"Compulsion could also lead to a levelling down, rather than an increase in pension saving and, at a cost of Ł22 billion, it could threaten the viability of some smaller firms," he added.